[AGIP 67] Curve Transition Plan - Securing funds for liquidity

Author: Maxicrouton#1596 GotchiID: 24877 Quorum requirement: 20% (9M) Vote duration: 7 days XP Reward: 20 XP for each Aavegotchi in the voter’s wallet Discourse Thread: https://dao.aavegotchi.com/t/dao-curve-transition-team/4676

Important note: Currently there is $38M of DAI in the curve contract, 30% more than when sigprop went live, so we are asking for a bit more funds than in sigprop ($4M increased to $5M). This increase allows us to increase the liquidity on the DEXs a little more and not end up with cash intended for liquidity that would end up lying idle.

Hello Frens!

The core proposal to close the curve is in progress and the vote for a 25/25/25/25% split is likely to pass. One of these 25% was voted by the DAO to be used as liquidity to allow new entrants not to suffer from high slippage and to have a nice and smooth price discovery.

At the moment the liquidity on the DEX is quite low. We have about $2 million in liquidity in the GHST-USDC Quickswap pool and we can assume that if we do nothing it will drop drastically because the 8% APY coming from the GLTR is not enough incentive compared to the impermanent loss risks when the curve will close.

The liquidity provision will be split in 2 plans:

• Pre-curve plan: Ensure high liquidity for the curve transition.
• Post-curve plan: Buyback (protocol rewards), DAO treasury management, liquidity reallocations after price discovery.

In the sigprop we had asked to secure $4M for the pre-curve plan while having fairly approximate plans, so after discussions with Balancer and Quickswap we are coming back with a more detailed plan.

This core-prop only discusses the pre-curve plan to ensure liquidity on DEXs.

We have a liquidity target of around $5M+, as this could allow new entrants to trade $50,000 with less than 2% slippage.

PRE-CURVE PLAN: DEXs: Quickswap and Balancer.

BALANCER LIQUIDITY PROVISION :

We have a maximum of 957,000 DAI available in the DAO treasury pre-curve closure (1.067M DAI - FArmy's 110k).

To add DAO liquidity, we chose an 80(GHST)-20(Stable) type pool. Since we have a lot more GHST than DAI in the treasury, this type of pool looks quite interesting.

To use 950k DAI in the Balancer pool we would need to match it with the following amounts of GHST if valued at 1.50:

80-20 pool: 2560000 GHST (4,750,000$ pool total)

This liquidity injection must occur 3 days before the close of the curve. Bribes program:

It is possible for the DAO to deploy 6M DAI (this number depends on the number of DAI at the close of the curve) on Balancer and earn 5% (~300k annual) + 5-6% BAL rewards. (For the rest of the calculation we will take the worst case: 5% APY total on the DAI => 300k$/year)

Then we can use the 300k+ in DAI rewards to bribe the 80-20 GHST-STABLE pool, giving the DAO more rewards. This allows us to yield on our treasury and not let it sleep without yield.

Bribes are done via Snapshot, which will require regular participation between our Snapshot DAO and Balancer.

QUICKSWAP V3 LIQUIDITY MINING PROGRAM :

To achieve the liquidity target, we believe that a liquidity mining (LM) program in addition to the direct provision of liquidity by the DAO is worthwhile.

We are targeting $3M+ in external liquidity from this program. We believe that an APR of 50% for 2 months would be enough to incentivize the liquidity provider. This would require 160,000 GHST in LM rewards. The GHST must stay above $4 for the LM program to be cheaper than the IL incurred for the DAO. This liquidity mining program must begin 3 days before the curve closes and last for 2 months.

We expect between 10% and 20% of the GHST amount in Quick rewards from Quickswap team for the liquidity mining rewards on their V3 (full range liquidity). For technical reasons, we cannot add all these rewards to the existing GLTR staking contract. So liquidity providers will have to choose between the GLTR rewards and the GHST + Quick rewards.

So, to summarize, we are asking the DAO to add 2,560,000 GHST with the 957,000 DAI available in the DAO treasury to a 80-20 Balancer pool. This pool will be bribed by the DAO through treasury management thereafter.

This provision of liquidity by the DAO will allow the DAO to earn swap fees and BAL rewards thus obtaining more cash flow. In addition to these numbers, we are asking the DAO to sponsor a Quickswap LM program with 160,000 GHST.

Doing a liquidity program can be smarter in high volatility times because a 50-50 pool is very prone to impermanent losses, and we prefer incentive liquidity rather than having the DAO lose money through IL.